This article is Part Two in a series discussing ten of the most noteworthy pronouncements from the Final Regulations regarding Code Section 501(r). Part One is available here.  In this second part of the series, Hall Render addresses five areas of significant developments pertaining to the requirements for the financial assistance policy (“FAP”), limitations on charges and billing and collection practices of tax-exempt hospital organizations: 

  • Financial Assistance Policy – Changes to the Policy Itself.  The Final Regulations continue to specify that the FAP must apply to all emergency and other medically necessary care provided by the hospital facility.  However, several changes have been made to the FAP requirements, which will require all hospital organizations and their counsel to complete a compliance review.  Among the more significant changes, the IRS and Treasury Department have extended the FAP requirements to care provided in the hospital facility by substantially related entities (such as disregarded entities and partnerships).  The FAP must also include a list of any providers (regardless of ownership) that deliver emergency or other medically necessary care in the hospital facility and specify which providers are (and are not) covered by the FAP.  Together, these changes will likely compel hospital organizations to reevaluate the scope of their FAPs and their relationships with related organizations and other health care providers such as physician groups.
  • Financial Assistance Policy – How to Widely Publicize.  The  Final Regulations clarified – and in some cases changed – when a FAP will be  considered “widely publicized.”  For hospital organizations, these widely publicized criteria will have an operational focus, especially since the requirement that the FAP include a list of the measures taken to widely publicize the FAP has been removed.  A hospital organization must pay close attention to its processes and procedures to ensure compliance because of the detailed nature of the criteria.  For example, the IRS and Treasury Department continue to require that the FAP be publicized to members of the community, which can be done in a manner reasonably calculated to reach those members who are most likely to require financial assistance.  Hospital organizations should also be aware that individuals receiving care from a hospital facility must be offered a copy of the plain language summary of the FAP as part of the intake or discharge process, and billing statements now must include a conspicuous written notice with basic information regarding the FAP (this replaces the previously proposed requirement to include a plain language FAP summary with billing statements). Similarly, hospital facilities must have conspicuous public displays located, at a minimum, in the emergency room and admissions areas.  In another important development, the IRS and Treasury Department have lowered the threshold for when a hospital facility must translate FAP documents into the primary language of any limited English proficiency (“LEP”) populations.  Under the revised rule, the FAP must be translated into any language spoken by each LEP language group that constitutes the lesser of 1,000 individuals or 5% of the community served by the hospital facility or the population likely to be affected or encountered by the hospital facility.
  • Limitations on Charges – Calculating AGB. The changes pertaining to the limitations on charges primarily focus on the calculation of amounts generally billed (“AGB”) and the related restrictions.  As a general matter, hospital organizations should be mindful that the financial impact of its FAP will be influenced by the approach taken to setting the AGB percentage.  With respect to the options for calculating AGB, the IRS and Treasury Department have continued to limit the options to the look-back method and the prospective method, but a requirement that the method could not be changed once selected was removed.  The method used to determine AGB can now be changed at any time.  Meanwhile, for purposes of calculating the AGB percentage, the Final Regulations include Medicaid as an option, either alone or in combination with Medicare or with Medicare and all private health insurers.  With respect to the look-back method, the IRS and Treasury Department clarified issues such as the timeframes involved in calculating the AGB percentage, the effect of discounts applied to amounts charged to insured individuals, and the time frame for updating the AGB percentage.  Among other changes, the IRS and Treasury Department have provided that a hospital facility may use all claims for medical care to determine AGB and are not restricted to claims for emergency and other medically necessary care.
  • Billing and Collection – Extraordinary Collection Actions.  The changes contained in the Final Regulations pertaining to billing and collections clarify several issues pertaining to what constitutes an extraordinary collection action (“ECA”).   For example, a hospital facility continues to be responsible for the actions of third parties, such as a debt collection agency, for ECAs that they engage in (subject to some exceptions).  The IRS and Treasury Department also added a new type of ECA that involves the act of deferring or denying, or requiring a payment before providing, medically necessary care because of an unpaid bill.  In order to comply with these provisions, a hospital organization will need to evaluate both its policies and practices concerning billing and collection.  In particular, hospital organizations should review relationships with third party collection agencies and the underlying contracts to ensure that the acts of third parties do not create risk for hospital organizations.
  • Billing and Collection – Reasonable Efforts.  The provisions outlining what constitutes “reasonable efforts” to determine whether an individual is eligible for financial assistance under its FAP have undergone significant revision in the Final Regulations, and they will require detailed review by hospital organizations and their counsel to ensure compliance.  For example, the IRS and Treasury Department have clarified that a hospital facility can make a presumptive FAP-eligibility determination based on third party information or a prior FAP-eligibility determination.  Under this scenario, a hospital facility still must make reasonable efforts to notify the individual of available assistance under the FAP if the individual has not already received the most generous assistance available under the FAP.  In addition, the previously defined term “notification period” has been removed from the Final Regulations.  In its place, the IRS and Treasury Department have provided that a hospital facility generally cannot engage in an ECA until (i) at least 120 days from the date the hospital facility provided the first post-discharge billing statement for the care; and (ii) no less than 30 days after the date the hospital facility provides written notice to the individual explaining that assistance is available for FAP-eligible individuals, identifying the ECA(s) the hospital facility intends to initiate and identifying the deadline after which such ECA(s) may be initiated.  This written notice must also include the plain language summary of the FAP and should coincide with a reasonable effort to orally notify the individual about the FAP.

These developments regarding FAPs, limitations on charges and billing and collection practices will require all hospital organizations to perform a compliance review.  This should even include those organizations that had already updated policies and procedures to comply with the proposed regulations.  Furthermore, compliance with the Final Regulations goes beyond policy revisions, as evidenced by the requirements to widely publicize the FAP and the steps that must be taken before ECAs can be initiated.  Hospital organizations and their hospital facilities will need to be very process-oriented and take steps to educate their staff throughout each hospital facility.